The Thermal Power Plant Holding Company plans to sell salaf contracts worth 22.7 trillion rials ($84 million) to finance electricity generation projects, the company’s head of budget and resources department said.
Electricity-backed Salaf securities are offered on the derivatives market at Iran Energy Exchange (IRENEX), according to Ali Saberi, IRNA reported.
IRENEX is a commodity exchange where physical energy carriers (oil, gas, electricity) and commodity-based bonds are offered.
Standard parallel salaf is an Islamic contract similar to futures with the difference being that the total price should be paid in advance.
This is the second time the energy bourse is funding the power sector via salaf bonds. Electricity companies generated 13.5 trillion rials ($50m) through the IRENEX derivative market last year.
Saberi expressed the hope that electricity companies will be given more leeway to access the capital market, underlining the higher efficiency of funding from the capital market compared to the snail’s pace with which projects are funded from the government budget.
"Reliance on public funding is the main reason why development projects have been held back. In some cases, projects take so long that it simply lacks economic viability. Alternative funding sources are crucial,” he said.
Outlining details, he said the contracts will be backed by electricity produced by private companies. On the maturity date, the contracts will be settled either via physical delivery or cash payment.
The contracts can be sold under call and put option contracts. A call option gives the buyer the right, but not the obligation, to buy the underlying security at the specified price, at or within a specified time.
A put option gives the buyer the right, but not the obligation to sell the underlying security at the specified price, at or within a specified time.
TPPHC oversees dozens of fossil fuel power plants with an installed capacity of over 69,000 MW, which meet the bulk of Iran's electricity demand. It also is in charge of developing 7,000 MW of gas-powered units in Jahrom, Sabalan, Kashan, Urmia, Chabahar and Asalouyeh combined cycle power plants, as well as completing the Parand Power Plant in south Tehran.
Reducing waste in the production, transfer and distribution networks, in addition to enhancing efficiency is a key priority of the Energy Ministry. Over 60% of domestic power is produced by private utility companies.
